Do Americans need to be reminded why businesses exist? During this presidential campaign season, candidates are capitulating, as usual, to the age-old practice of promising benefits (this year called “free stuff”) to the voting public – at the expense of private businesses. It would seem that, once again, in the minds of both politicians and even employees, the purpose of businesses is to provide jobs with benefits.
As one who spends his time literally daily helping businesses learn to achieve better profits while adjusting to shifting expenses and revenues, I wish so much that I could tell employees of my clients just how frequently business owners don’t take a salary, or even how much of their personal savings they are putting back into the business just to ensure they can meet payroll. These businesses often hire me because the owners are drawing much less in compensation than their own employees.
So allow me to state what should be the obvious:
BUSINESSES: The purpose of businesses is to make money. Business owners do not owe anyone employment, and should do everything in their power to employ as few people as they possibly can, at the lowest wage possible.
EMPLOYEES: The purpose of employees in a business is to work so that the employer makes money. By definition, an employee is a profitable employee when said employee is paid less than the profit he or she generates. You earn your wage by creating more profit than you are paid.
Now before any employee who after reading this feels compelled to create distance between himself and sharp objects, or worse yet, to grab sharp objects and then seek my whereabouts, it’s vitally important that employees know that they are the single most important resource a business has to make money. They are generally worth more than they realize. Business owners have every incentive to pay as high a wage as possible to good employees. Repeat, to good employees.
Employees are also generally the single biggest expense a business has to bear. The labor burden sustained by any business is not just in the salary given to the employee. There are vacation days, sick leave days, health insurance subsidies, taxes, miscellaneous days off, holidays, breaks, not to mention inventory shrinkage (employees stealing a business’s inventory). The rather delicate balance sustained that permits businesses to keep employees long term depends completely on how marketable the business’s products are, and what price they’re able to get the public to pay for their products.
The more benefits a business offers employees, the higher the price they must charge for their products. Therefore, it’s the consumers, at the proverbial end of the day, who pay for additional benefits. If they won’t pay the higher price, either the company stops providing the benefit, or (if government imposed law demands the benefit be offered), the company is forced out of business, with all employees losing their jobs.
It seems that today’s politicians don’t understand that. Neither do some of their voters. While reading recent Democratic Party presidential debate reactions posted to a media blog commentary, I found myself surprised – or perhaps more accurately, disappointed – at seeing the following expectations posted on the blog, with no acknowledgement whatsoever of who would pay for these expectations:
- “Why aren’t they presenting their plans for raising the minimum wage?”
- “Combating terrorism is great, but what about providing more sick leave for employees?”
- “How can German companies provide 6 weeks a year in paid vacation, and we Americans can’t? These candidates should at least make sure we keep up with Europe.”
- “It’s not fair that pregnant women and their significant others have so little paid maternity leave. A president needs to compel employers to care about families.”
- “I wish the candidates would discuss how they’re going to fix wage disparity.”
According to a recent study performed by the Kaufmann Foundation as cited in Forbes, businesses less than 5 years old have provided almost all private sector jobs over the last 25 years. So entrepreneurial success means more jobs. If the business fails, employment ceases.
Employees who have expected raises or higher wages have been frequently disappointed in the last 7 years. A fascinating, and unprecedented, employment dynamic of these past 7 years is that more than 8 million new jobs have been added, yet household income has dropped. This means that more people are now working and everyone is making less money … about $3,000 less per household. This is the first economic recovery in history in which household incomes have actually dropped.
This Thanksgiving week is a great week for employees to decide how they can make themselves more profitable to their employers. Business owners should also feel gratitude for their outstanding and loyal employees. The two groups combined will do more to assure higher wages and employee benefits than any politician can do.